Supermarket Key Attributes

and Location Decisions:

A Comparative Study between
British and Spanish consumers

Rosa Colomé ∂

Daniel Serra ψ

∂
Dept. of Economics and Business, Universitat Pompeu Fabra, Trias Fargas, 25-27, Barcelona 08005, Spain.
Tel: 34-3-5422696, Fax: 34-3-5421746. Mail: rosa.colome@ econ.upf.es
ψ
Corresponding author: Dept. of Economics and Business, Universitat Pompeu Fabra, Trias Fargas, 25-27,
Barcelona 08005, Spain. Tel: 34-3-5421666, Fax: 34-3-5421746. Mail: daniel.serra@econ.upf.es

1
 Supermarket Key Attributes and Location Decisions:

A Comparative Study between British and Spanish

Consumers

Abstract

The Maximum Capture problem (MAXCAP) is a decision model that addresses the issue
of location in a competitive environment. This paper presents a new approach to
determine which store’s attributes (other than distance) should be included in the new
Market Capture Models and how they ought to be reflected using the Multiplicative
Competitive Interaction model. The methodology involves the design and development of a
survey; and the application of factor analysis and ordinary least squares. The
methodology has been applied to the supermarket sector in two different scenarios: Milton
Keynes (Great Britain) and Barcelona (Spain).

2
 1. INTRODUCTION

Major food retailing companies in the UK are increasingly moving away from building large

superstores and are investing in convenience food stores and middle sized supermarkets

(Hunt, 1997). Moreover, 73.2% of the consumers consider supermarkets as the retail channel

providing the best overall experience for food shopping (Orgel, 1997).

The trend of the middle sized supermarkets holds true for most European countries with

supermarket as the main shopping destination in most of Europe, except in France, Portugal

and Greece (The European, April 6, 1998). Specifically, the Spanish trends in food retailing

companies reveal an the waxing fortunes of supermarkets and the wane of corner-shops and

convenience shops (Pau and Navasmés, 1998).

Given this new trend, one would expect retailing companies to put their hopes for growth in

supermarkets. Research findings reveal that the main reasons for choosing this format of

food retailing are price (35.2 %), location (19.7 %), quality (18.8%) and variety (13.1 %)

(Orgel, 1997). While price, quality and variety can be changed to deal with competitors’

policies, the same cannot be said of location which, to all intents and purposes, represents a

fixed one-time investment of a unique, unchangeable nature.

In this environment, supermarket’s location could be the most important determinant of the

supermarket’s success or failure. A well-known aphorism states, “the most important

attributes of stores are location, location and location”. It is therefore not surprising that

considerable study has been devoted to this point. One approach to this field is that enshrined

by Competitive Location literature in discrete space.

Competitive Location literature in discrete space addresses the issue of optimally locating

firms that compete for clients in space. A competitive location model is such that there is

3
more than one firm competing in the spatial market and with interaction between them. The

location decision of a firm will affect not only its market share, but also its competitors

market shares (Serra and ReVelle, 1996). Freisz, et.al. (Freisz, et.al., 1988) pointed out that

one of the three competitive network facility location models that were “likely to serve as

foundations for future models” is ReVelle’s Maximum Capture Problem (MAXCAP)

(ReVelle, 1986). Traditionally, the discrete location modeling literature has been

successfully applied to locate public sector services, where the main aim is to optimize some

measure of service quality in terms of access (e.g., maximizing service coverage or

minimizing average distance to the service). Actually, new models are appearing within a

private sector context, where there is competition among providers of the service. The

models employed focus on solving problems like hierarchical services and scenarios with

different demand and/ or competitor locations. To date, this literature has assumed that

consumers shop at the closest store supplying a specific product or service. However, one

needs to ask whether this assumption reflects consumer behavior. It seems more realistic to

admit that consumers do not merely consider distance when making-choosing retail shops.

Store-Choice literature studies the key variables that influence a consumer when deciding

where shop as well as the interaction between these variables. Literature on the subject

reveals that distance is not the only variable consumers take into account when deciding

where to make their purchases.

This last statement sheds light on the next direction of research in MAXCAP problems,

trying to include Store-Choice theories in its models. It stands to reason that any retail

location model should take into account the processes underlying consumers’ choice of

store. The paper follows up this new direction of research whose broader aim is to provide a

4
new version of the MAXCAP model, which could be applied to the retail sector. This

broader research work has defined three main stages on the way to achieving this objective:

§ First, an analysis of how best to include distance in the new version of MAXCAP model.

§ Second, analyze which store attributes (other than distance) should be included in the

new version of the MAXCAP model and how these could be incorporated.

§ Third, a solution employing the new version of the MAXCAP model and its application

to a real case.

Since the first stage was analyzed by Colomé and Serra (Colomé and Serra, 1998), this paper

tackles the second stage and its application to the supermarket sector.

In essence, the MAXCAP problem seeks the location of a fixed number of stores for firm

entering in a spatial market where competitors’ shops are already doing business. Since

consumers in an area are captured by a given shop if there is no closer shop, the objective of

the entering firm is to maximize its market capture. The MAXCAP model uses the

traditional view of all or nothing capture relative to the distance criteria. This assumption

emerges in the definition of the parameter ρij. Specifically, the parameter ρij is defined as a

binary variable that takes value 1 (i.e. all consumer’s zone i will shop at shop j) if the shop j

is the closest one to the consumer’s zone i. The underlying assumption is thus that

consumers will automatically shop at the closest store.

As we have said, this assumption does not reflect the real behavior of consumer’s choice.

Hence the interest in incorporating Store-Choice theories to define the ρij parameter in

MAXCAP models. In this paper, ρij has been defined by using the revealed preference

5
approach of the Store-Choice Behavior theories. Specifically, the Multiplicative1

Competitive Interaction2 (MCI) model (Nakanishi and Cooper, 1974) was used. This model

determines ρij using information revealed by past consumer’s behavior in order to understand

the dynamics of retail competition and how consumers choose among alternative shopping

opportunities.

The paper is organized as follows. Section 2 reviews the literature. Section 3 presents the

new methodology, which involves a survey and the application of several analyses to each

scenario (presented in Section 4). Section 5 presents the new MAXCAP model for the

supermarket sector. The conclusions are set out in Section 6.

2. LITERATURE REVIEW

The choice of a store’s location is considered to be the single most important decision a retail

organization makes since it is a critical factor in the enterprise’s success or failure. Given the

importance of this issue, several lines of study have addressed the question of store’s

location. The relevant ones for this paper are the Competitive Location Literature and the

Store-Choice one.

2.1. COMPETITIVE LOCATION LITERATURE

Competitive Location Literature is one line of study within the retail store field which

addresses the issue of optimally locating firms that compete for clients in space. Hotelling

pioneered this field (Hotelling, 1929) and assumed that consumers would shop at the nearest

store. Different models based on this assumption of consumer behavior have been developed

1
Note that this model becomes additive after the log-transformation is undertaken (see section 3.4.).
2
The Competitve Interaction condition arises from the fact that in this model individuals select among
alternatives probabilistically, in relation to the utilities offered by each choice alternative.

6
since then. Friesz, et.al. (Friesz, et.al., 1988) pointed out that there are three competitive

network facility location models that were “likely to serve as foundations for future models”.

These ones are the ones of Lederer (Lederer, 1986), Tobin and Friesz (Tobin and Friesz,

1986) and ReVelle (ReVelle, 1986).

The key one for this paper was the one developed by ReVelle (ReVelle, 1986). ReVelle and

his followers constructed a group of models that examined competition among retail stores

in a discrete spatial market. The basic model was the Maximum Capture Problem

(MAXCAP) (ReVelle, 1986). In essence, the MAXCAP problem seeks the location of a

fixed number of stores (p stores) for an entering firm in a spatial market where there are

other shops from other firms already competing for clients3. The spatial market is

represented by a network. Each node of the network represents a local market with a fixed

demand, which is given. The location of the shops is limited to the nodes of the network.

Competition is based on distance: a market is “captured” by a given shop if there is no other

shop closer to it. The objective of the entering firm is to maximize its market capture4.

This model has been adapted to different situations. The first modification introduced shops

that are hierarchical in nature and where there is competition at each level of the hierarchy

(Serra, et. al., 1992). A second extension took into account the possible reaction from

competitors to the entering firm (Serra and ReVelle, 1994). Finally, another modification of

the MAXCAP problem introduced scenarios with different demands and / or competitor

locations (Serra et.al. 1996). A good review of these models can be found in Serra and

3
Without loss of generality, it is assumed that there is only one competing firm operating in the market

(ReVelle, 1986).
4
This objective, given the assumptions on the characteristics of the retail stores, is almost equivalent to

maximising profits (Hansen, et.al., 1987).

7
ReVelle (Serra and ReVelle, 1996) and a real application of it in Serra and Marianov (Serra

and Marianov, 1999).

The p-median formulation5 of the basic MAXCAP model states that:

(1) MAX Z = ∑∑ ai ρij xij

i∈I j∈J

Subject to

(2) ∑x
j⊂J
ij = 1, ∀i ∈ I

(3) xij ≤ x jj , ∀i ∈ I , ∀j ∈ J

(4) ∑x
j⊂J
jj =p

xij = {0,1} x jj = {0,1} ∀i ∈ I , ∀j ∈ J

Where the parameters are:

i , I = Index and set of consumers’ zones.

j , J = Index and set of potential locations for shops.

J B (∈ J ) = The set of actual locations of the existing shops.

d ij = The network distances between consumers’ zone i and a shop in j.

5
The p-median like approach is the one that took into account the fact that the demand depends on the distance

to the shop (Serra and ReVelle, 1996).

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 d ibi = The network distances from node i to the closest competitor shop bi.

ai = Demand at consumers’ zone i.

And the variables are defined as follows:

xij = 1, if consumers’ zone i is assigned to node j; 0, otherwise.

x jj = 1, if a shop of firm’s A is opened at node j; 0, otherwise.

The constraint set basically that: constraint set (2) forces each demand node i to assign to

only one facility. But for a demand node i to be assigned to a facility at j, there has to be a

facility open at j; this is achieved by constraint set (3). Finally, constraint (4) sets the number

of outlets to be opened by firm A.

The objective function defines the total capture that firm A can achieve with the siting of its

p servers.

In this model, the parameter ρij is assumed to be:

ρij = 1 , if d ij < d ibi ; 0 , otherwise.

The application of Store-Choice theories in Competitive Location models is an attempt to

define the ρij parameter in a way, which is not just based on proximity

2.2. STORE-CHOICE LITERATURE

Store-Choice literature tries to understand the consumer store-choice process. This

literature studies the key variables, which a customer takes into account when shopping at a

particular shop, and how these variables interact. This literature usually assumes that the

consumer not only cares about which shop is the closest but also considers other variables in

9
making his decision to patronize a particular establishment. The development of the

consumer store-choice literature has been extensive.

Store-Choice models may be classified into three groups (Craig, et.al., 1984).

The first group includes models that rely on some normative assumption regarding consumer

travel behavior. The simplest model is the nearest-centre hypothesis; i.e., consumers

patronize the nearest outlet that provides the required good or service. This hypothesis has

not found much empirical support, except in areas where shopping opportunities are few and

transportation is difficult.

The empirical evidence suggested that consumers trade off the cost of travel with the

attractiveness of alternative shopping opportunities. The first one to recognize this was

Reilly in its Reilly’s “law of retail gravitation” (1929) based on Newton’s Law of

Gravitation6 (1686). Reilly’s law states that “the probability that a consumer patronizes a

shop is proportional to its attractiveness and inversely proportional to a power of distance to

it” (Reilly, 1929). Reilly was the precursor of the “gravity” type of spatial choice models. As

this early stage, these models were non-calibrated in the sense that the parameters of the

models have a priori assigned value. The best representatives of this group are the models of

Reilly (Reilly, 1929) and Converse (Converse, 1949).

These non-calibrated gravity models have some limitations (Diez de Castro, 1997):

§ They can only be applied to big stores like hypermarkets and shopping centers.

§ They can only be applied when the consumer buys non-usual goods.

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§ They have a restrictive assumption that forces consumer’s zones to be assigned to only

one shop.

The second group includes models that use the revealed preference approach to calibrate the

“gravity” type of spatial choice models. These ones use information revealed by past

behavior to understand the dynamics of retail competition and how consumers choose among

alternative shopping opportunities.

Huff (Huff, 1964) was the first one to use the revealed preference approach to study retail

store choice. The Huff probability formulation uses distance (or travel time) from

consumer’s zones to retail centers and the size of retail centers as inputs to find the

probability of consumers shopping at a given retail outlet. He was also the first one to

introduce the Luce axiom of discrete choice7 in the gravity model. Using this axiom,

consumers may visit more than one store and the probability of visiting a particular store is

equal to the ratio of the utility of that store to the sum of utilities of all stores considered by

the consumers.

The main critique to Huff model is its over-simplification since it only considers two

variables (distance and size) to describe consumer store-choice behavior.

Nakanishi and Cooper (1974) extended Huff’s model by including a set of store

attractiveness attributes (rather than just one attribute employed in Huff’s model). Attributes

such as consumer opinion of store image, store appearance, and service level can be used, as

6
Newton’s Law of Gravitation studies the force between planets and stars in the universe. This law states that
the force between two bodies is proportional to the product of the masses of the bodies and inversely
proportional to the square of the distance between them.
7
Luce axiom applied to this case assumes that customers choose the optimal location option as a function of
the utility of this option with respect to the level of utility of the other options.

11
well as objectives measures as travel distance and physical distance (Vandell & Carter,

1993). This more general statement was known as the Multiplicative8 Competitive

Interaction9 (MCI model).

Revealed preference methods overcome the problems of normative methods because

consumers are not assigned exclusively to one shop, and the models can be applied to cases

where consumers shopping habits are independent of store size. Despite these improvements,

these models also have their drawbacks10 (Craig, et.al., 1984):

§ They assume consumer utility function to be compensatory. But in reality consumers

reject stores beyond a certain distance. Consumers may also reject stores unless they

possess minimum levels of other attributes.

§ Context dependence; i.e., the estimated parameters reflect the characteristics of existing

stores in the area. For example, the parameters associated with characteristics on which

the existing stores do not differ much would be low. This does not, however, imply that

such characteristics are unimportant to consumers but rather, that because of their

similarity across stores, other variables are used to discriminate among them.

§ The distance decay parameter (β) is highly dependent on the characteristics of the spatial

structure. The implication is that in assessing the importance of location on store utilities,

individuals consider not only the distance to that stores but also the relative distances to

8
Note that this model becomes additive after the log-transformation is undertaken (see section 3.4.).
9
The Competitve Interaction condition comes from the fact that in this model individuals select among
alternatives probabilistically, in relation to the utilities offered by each choice alternative.
10
Some of these problems can be alternatively seen as a reflection of the “reality”. For this reason, we present
here the theoretical limitations of these models, but at the concluding section, these limitations are checked to
the case analysed in this thesis.

12
 other stores in the area. The result is that consumers residing in different areas might

differentially weight the impact of distance on store choice.

Finally, the third group includes the models that use direct utility. These models overcome

the problem of context dependence, estimating consumer utility functions from simulated

choice data using information integration, conjoint or logit techniques. Instead of observing

past choices, these methods use consumer evaluations of hypothetical store descriptions to

calibrate the utility function. The best representative model of this group is the one

developed by Ghosh and Craig (Ghosh and Craig, 1983) based on game theory.

Given that the aim of the thesis is the incorporation of one store-choice model in the

MAXCAP model, one of the previous store-choice models needs to be chosen. The criterion

used in making this choice is how well the resulting model can be applied to the real world.

A recent paper (Clarkon, et.al., 1996) analyzed which location models are used by UK

grocery retailers. The research shows that the procedure used by major grocery retailers

operating within the UK do not rely on one approach but employ a combination of several.

These different approaches were used in a sequence to maximize the overall effectiveness.

Firms initially use checklist analysis to reduce the cost and time required to assess a large

number of potential site locations before using the analogue approach, regression or a gravity

model. Finally, the financial analysis decides which location is the most suitable for the new

supermarket.

As can be seen, theoretical models are applied to the real world as part of a wider analysis.

The Clarkon’s study also shows the fact that the most highly-developed models like MCI

and Multiple Store Location (Achabal, et.al., 1982) are usually applied in a retailing context

by US firms, but not by UK firms. The reason is that grocery retailers operating within the

13
UK believed that the consumer spatial structure of shopping opportunities in the UK differs

to the one found in the US.

The conclusions of the Clarkon paper show that firms prefer the revealed preference

approach to model consumer store-choice behavior. This approach is preferred to normative

models since it more faithfully reflects real consumer behavior whilst the direct utility

approach is simpler since it uses surveys and linear regressions instead of conjoint, logit

techniques or game theory.

In the revealed preference approach, the most popular model is the MCI model (Craig, et.al.,

1984). One of the practical problems of this model is that to date all the calibration had

reflected the consumer spatial structure of shopping opportunities of the US market. The

problem is overcome in this paper because the surveys were conducted in the UK and Spain.

This means that calibration of the MCI in this case reflects British and Spanish Consumer

Spatial structure.

3. METHODOLOGY

The main objective of this thesis is the presentation of a new methodology for determining

which store attributes (other than distance) should be included in a new version of the

MAXCAP model applicable to the retail sector as well as how these parameters ought to be

reflected. The parameter ρij included in the MAXCAP model will be determined using the

Multiplicative Competitive Interaction model. Specifically, the estimation of parameter ρij

will be performed for two scenarios: Milton Keynes (in Great Britain) and Barcelona (in

Spain).

The methodology presented and used in this paper is shown in Figure 1.

14
 Figure 1. Methodology

Step 1: Design and development of a survey on consumer

supermarket- choice behaviour

Step 2: Estimation of the supermarket’s key attributes

through a Factor analysis applied to the survey
database

Step 3: Specification of the MCI model using the factors

found in the previous analysis as variables

Step 4: Calibration of the model (determination of significant

supermarket factor attributes and estimation of
sensitivity parameters) by applying of the ordinary
least squares methods on the log-transformed centered
form of the specified MCI equation

15
3.1. FIRST STEP

The first step of the paper is the design and development of a survey of consumer

supermarket-choice behavior. This is required since MCI is a revealed preference model. In

other words, the model uses information revealed by past consumer behavior to calibrate its

parameters.

First of all, a questionnaire was design o be used in a personal interview survey. The main

structure of the questionnaire included three main parts.

First of all, general questions on shopping behavior were done. Questions 1&2 determine the

issue of multi-supermarket shopping; i.e., if consumers went to one or more supermarkets to

do their shopping. Question 3 was an open-ended question on the reasons for choosing one

supermarket to do the “shopping”. And finally, in question 4, consumers were asked to rank

the main supermarket’s attributes. These attributes were extracted from a paper (Burn, 1992)

that reviewed the definition of store attributes by different authors.

The second and most important part of the questionnaire includes specific questions on

supermarket’s attributes. This general section of specific questions on supermarket’s

attributes was structured in blocks representing the main supermarket attributes groups.

These blocks were the ones defined by London & Della (London & Della, 1998): Location,

Convenience, Customer Service, Merchandise and Prices.

Consumers were asked to make scalar judgements in an interval on the importance of

various supermarket attributes (except location) when choosing where to do their

“shopping”. The specific attributes in each block are the ones defined in Della (London &

Della, 1988) and McGoldrick (McGoldrick, 1990). The attributes were measured in

16
accordance with the procedures set out in the Marketing Scales handbook (Gordon, et.al.,

1993).

The aim of location was to glean information requires for determining the variables ρij and

dij11 These ones need the determination of the origin and destination of the trip. The

destination in this case is clear because it is the supermarket where customers had just done

their shopping. But the point of origin is more difficult to ascertain. Most researchers assume

that people always travel from home when they go shopping. But nowadays, given

demographic changes (e.g., working women), the trip origin may be either home or the

workplace12.

Finally, the third block included some demographic questions.

The survey for this thesis was conducted in Spain and Great Britain. The only differences

between both samples were the supermarkets involved. The type of survey, the questionnaire

and the sample design were the same. This was so because the aim was to analyze the

differences between Spanish and British consumer store-choice behavior.

The target population in Great Britain was British supermarket shoppers. The sampling

frame was shoppers at two supermarkets in the Food Centre of the Central Milton Keynes

Shopping Centre. The two supermarkets located in this area are Sainsbury and Waitrose. The

target population in Spain was the Spanish supermarket shoppers. The sampling frame was

shoppers at two supermarkets in the centre of Barcelona. These are Bon Preu and Caprabo.

11
Traditionally, distance has been considered one of the basic reasons for patronising one supermarket. In this
paper, distance was computed both in terms of physical distance and travel time distance from home and
workplace.
12
Note that we have assumed that there is only two possible origin for the trip. The reason is that these two are
the most important ones and the adding of more options could complicate the analysis.

17
In principle, the financial constraints of this study determined a sample of 200 consumers in

each country. However operational problems in the British survey resulted in a sample of 99

consumers. Thus, the Spanish sample size gives a level of accuracy (confidence level) of ±

7.1 % (for all variables), while the British sample yields a level of accuracy of ± 10 % (for

all variables).

The sample procedure selected in this case is a simple random sampling one. Additionally in

this case, we split the sample size into different hours and days. The reason was that we

wanted to avoid a sample biased toward only one type of supermarket customer (e.g. weekly

and weekend shoppers). We therefore decided to conduct 60% of the interviews on

Wednesdays (all day) as a guide to weekly shopping habits and 40% on Fridays (afternoon

& night) to give a picture of weekend consumers.

After conducting the fieldwork, the Spanish sample followed the previous a priori

distribution. However operational problems with the British survey prevented this a priori

distribution being followed. It also proved impossible to follow the a priori daily

distribution, although it was possible to split the British distribution by supermarket

patronized (59 Sainsbury consumers and 40 Waitrose consumers).

3.2. SECOND STEP

When consumers choose one supermarket to shop, they have to evaluate a large number of

attributes. In the questionnaire of this thesis, consumers were asked to evaluate the relative

importance of a large number of supermarket’s attributes. At this stage, store-choice

behavior can be seen as a large multi-attribute problem. But, we need a more parsimonious

description of the data to assess a general store-choice behavior. How can we do it?

18
A theoretical approach for handling multi-attribute judgement problems with a large number

of attributes is the Hierarchical Information Integration approach (Louviere, 1984). This

approach is based on the assumption that it is a reasonable strategy for consumers to

organize individual decision attributes into clusters or sets. Consumers then evaluate and

aggregate some property of each of the sets to reach an overall judgement. Moreover, this

approach suggests that one could use factor analysis to determine the sets of attributes, and

then use these sets as the basis for the hierarchical task.

As the supermarket choice behavior can be seen as a large multiattribute problem (Louviere

& Gaeth, 1987), we can use the assumptions of the previous theoretical approach. Using

them, the attributes evaluated in the surveys can be categorized into specific factors using

Factors analysis.

Moreover, it can be pointed out that a recent research (Hutcheson and Moutinho, 1998) have

used factor analysis and regression analysis to estimate the relative importance of each of the

factors selecting supermarkets and the way in which they interact to determine the level of

customer satisfaction.

3.3. THIRD STEP

After finding the key supermarket factor attributes, the next step is the specification of the

MCI model. This specification involves the substitution of the Akij variables of the MCI

model, by the factors found in the previous factor analysis and two key variables related to

distance13 (physical distance14 and travel time distance15).

13
The ordinary least square theory states that the omission of relevant variables in a regression analysis could
lead to biased estimators (i.e., a biased estimator is one where the estimated value is different from the true
one). Then, in this case, the simplest distance variables have been included in the MCI specification to achieve

19
The MCI version used in this thesis is the original version of Nakanishi and Cooper

(Nakanishi and Cooper, 1974) which formulation states that:

 s 
 ∏ Akij k
β

(5) ρ ij =  k =1 
m
 s 
∑  ∏ Akij k
β

j =1  k =1 

Where, at this stage,

ρ ij = The probability that consumers at location i will shop at shop j. (i.e., The proportion

of capture that a shop in j will achieve by consumers’ zone i)

Akij = The k-th attribute describing shop j attracting consumers from site i; in this case:

- The attributes’ factors found by Factor analysis

- And two distance variables (physical distance and travel time distance

from consumers’ zone i to shop j).

i = Index of consumers’ zone; i = 1,..., n.

j = Index of shops; j = 1,...,m.

unbiased estimators (although the thesis’ aim is the determination of the store’s attributes excluding distance
variables).
14
Physical distance is computed as the Manhattan rectilinear distance (because the scenario is a city) from the
exact address of the origin to the supermarket in the Spanish survey. Due to some operational problems in the
British survey, the physical distance in the British case has been computed with the answer to the second
question of the location block: How far is the store from your home / your workplace?
15
Travel time distance has been computed, in both cases, with the answers to the third question of the location
block: How long does it takes to get to the store from your home / your workplace?

20
 β k = Parameters still not estimated, which reflect the sensitivity of consumers to the shop

characteristics on the probability to shop at a particular shop.

An assumption of the original Nakanishi and Cooper MCI model formulation restricts the

estimation of the attribute’s effect ( β k ) to a single parameter reflecting aggregate market

response to all shops alternatives. The use of such market wide parameters allows one to

assess how each variable affects patronage but does not permit analysis of these influences

for an individual shop (Black, et.al., 1985).

Given this assumption, the Nakanishi and Cooper estimation is not useful in most real cases.

The reason is that a firm employing the MCI model usually wants to estimate its individual

sensitivity parameters. This is a different case to the one studied in this paper. Here, the

variables and the sensitive parameters, which reflect aggregate market response to all shop

alternatives, have been estimated. Following the same approach, Jain and Mahajan (Jain and

Mahajan, 1979) estimated the original Nakanishi and Cooper MCI model for the food-

retailing sector of a large US north-eastern metropolitan area.

3.4. FOURTH STEP

After specification of the MCI model, it only remains to calibrate the model to each specific

scenario. The calibration involves two things:

§ The identification of the significant attributes in each case (i.e., which attributes are

significant to explain the supermarket choice in each scenario).

§ The estimation of the sensitivity parameters ( β k ) of consumers to the relevant

supermarket factor-attributes (i.e., which level of importance is given to each significant

attribute).

21
 Nakanishi and Cooper (Nakanishi and Cooper, 1974) showed that the MCI equation could be

calibrated by the ordinary least square method on the log-transformed centered form of the

equation. They also demonstrated that these estimations could be unbiased and efficient

when sampling errors were negligible and specification errors were uncorrelated.

In practical terms, firstly, the original MCI equation16 (equation (6)) is transformed into its

log-transformed-centered form (equation (7)). And then, the ordinary least square method is

applied to equation (7) to obtain the parameters’ estimators.

 s  *
 ∏ Akij k
β
ς ij
(6) ρ ij =  k =1 
m
 s β 
∑  ∏ Akij k ς ij*
j =1  k =1 

p  A   * 
 ij  s
 kij   ς ij 
(7) ln ∧  =
 p 
∑ ln ∧
k =1  A
 + ln ∧ *
 


 i   ki  ςi 

Where,

1
 m  m
pˆ i =  ∏ p ij  = Geometric mean of the probabilities of consumers at zone i shopping at
 j=1 

m-shops.

1
 m  m
Aˆ ki =  ∏ Akij  = Geometric mean of k-th attributes of m shops evaluated by consumers
 j =1 

at zone i.

16
Note that a disturbance term has to be included when the parameters of the model were estimated.

22
 1
∧
 m  m

ς =  ∏ ς ij*  = Geometric mean of the specification error terms of m retail facilities.

 j =1 
i

Although this estimation seems operationally simple, there is a computational problem for

the analyst: if consumers from any zone i (i = 1...n) do not shop at a shop j (j = 1... m), the

resulting pij and the geometric mean, p^i, for the consumers’ zone will be equal to zero. In

such an event, the transformation of the ratio pij / p^i will not be possible for parameter

estimation (Jain and Mahajan, 1979). The practical solution is the creation of consumers’

zone; each of this consumers’ zone has to have consumers patronizing all supermarket

alternatives. For example, if the scenario has two supermarkets, each consumers’ zone has to

have consumers that shop in supermarket 1 and consumers that shop in supermarket 2.

In this study, this computational problem has one practical consequence: each database has

individual consumers as cases. This implies that before applying ordinary least squares on

the log-transformed centered form of the MCI equation, consumers’ zones need to be

created. Specifically, the consumers’ zones have been created in such a way that consumers

of both supermarkets17 belong to it18.

4. ANALYSES OF DATA

4.1. PRELIMINARY ANALYSES: GENERAL SHOPPING BEHAVIOR

Before the detailed questions about the supermarket’s attributes, several questions related to

general shopping behavior were done. In the second general question, consumers were asked

17
Note that the scenarios analysed in this thesis have two supermarkets.

23
to rank the main supermarket attributes. In the Spanish survey, there were 8 dimensions to be

ranked (from very important 1 to not important 8); while in the British survey, there were 9

dimensions to be ranked (from very important 1 to not important 9)19. To summarize these

rankings, the mean and standard deviation of each attribute were computed (Table 1).

18
Note that the evaluation of each supermarket attribute for each consumer zone has been computed as the
average evaluation of the customers of this specific supermarket in this specific demand node.
19
The British questionnaire includes the dimension of financial service (defined as the services offered by
supermarkets that had a bank). While, the Spanish survey does not include it because Spanish supermarkets do
not yet offer this type of service.

24
 Table 1. Ranking of supermarket attributes20

IMAGE DIMENSION Spanish sample British sample

Mean Standard Mean Standard

Deviation Deviation

Convenience 1.62 1.17 2.98 1.98

Quality products 3.68 1.65 2.71 1.59

Range products 4.07 1.47 3.10 1.49

Price products 4.26 2.02 3.46 1.94

Staff 4.28 1.70 5.41 1.41

Hours of opening 4.80 2.24 5.03 1.73

Customer Service 6.15 1.71 5.80 1.80

Customer Account 7.16 1.35 8.12 1.11

Financial Service (only UK) - - 8.40 0.85

20
A χ 2 test to the frequencies of these variables shows that all of them are significant.

25
From the previous Table 1, we can pointed out that, in the Spanish sample, convenience

(1.62) was the most important characteristic for customers whilst financial services (7.16)

was the least one. The other range of characteristics fell between these extremes in the

following order: quality of products (3.68), range of products (4.07), price of products

(4.26), staff (4.28), hours of opening (4.30) and customer service (6.15). The standard

deviation scores also provided some useful information on the pattern of responses.

Relatively low deviation scores were observed for items such as convenience and financial

services, whereas higher deviations were observed for items such as price products and

hours. This result was to be expected, since the mean perceived importance of items is likely

to be dependent, at least to some extent, on how the perceived importance of items

differentiates the sample. For example, convenience was importance to most, if not all,

respondents and was rated similarly by everyone. In contrast to this, some items appeal more

to specific subgroups of the sample and therefore attract different ratings of importance,

which increase the standard deviation measure. An example of this is hours of opening,

which is not likely to be an important consideration for all respondents.

In the British sample, quality products (2.71) proved the most important characteristic whilst

financial service (8.40) was the least one. The other characteristics fell between these two

extremes in the following order: convenience (2.98), range of products (3.10), price of

products (3.46), hours of opening (5.03), staff (5.41), customer service (5.80) and customer

accounts (8.12). In this case, low deviation scores were obtained for items such as financial

service and customer accounts; whereas higher deviations were observed for items such as

convenience and price of products.

26
4.2. DETERMINATION OF KEY SUPERMARKET ATTRIBUTES

4.2.1. SPANISH CASE

Factor analysis21 was applied to the Spanish survey. Eight factors were identified. These

factors represented 68 percent of the variance of the 21 variables22. This percentage was

acceptable given that the criterion of satisfactory percentage of variance explained in social

science is 60 % (Hair, et.al., 1998).

The interpretation of the rotated factor matrix was supported by the fact that the minimum

significance level for the factor loading in a sample size of 200 is 0.4 (using table 3.2., page

112, Hair, et.al., 1998). In other words, in a sample of size 200, the variables with factor

loadings greater than 0.4 are considered significant.

The label and the significant factor loading variables (i.e., the variables with a factor loading

greater than 0.4) of each factor are the ones shown in Table 2.

21
In this case, factors were extracted with component analysis and using Varimax rotation.
22
Note that 5 variables were extracted in the reespecification because their communalities were less than 0.5.

27
 Table 2. Factors for Spanish survey

Variable Characteristic Factor loading

Factor 1: Accessibility by modes of transport

Parksp It is easy to park at the store 0.862

Publictsp Easy access by Public Transport 0.715

Dpetrolsp Petrol discounts 0.846

Dparksp Parking discounts 0.815

Factor 2: Checkout and shopping assistance service

Fchecksp Fast checkout 0.780

Echecksp Express checkout counters 0.703

Sassistsp Shopping assitances are courteous and 0.666

knowledgeable

Factor 3: Store design and physical facilities

Crowdsp No crowded store 0.572

Emovesp It is easy to move around the store 0.811

Fprodsp It is easy to find products (readable labels) 0.777

Factor 4: Club card facilities

Clubcsp Supermarket Club Card 0.790

Creditsp The store lets you buy on credit 0.789

Pbrandsp Store has products of all well known brands and 0.421
own label ones

Factor 5: Quality and range of the merchandise

28
Prangesp Store has all basic products and a variety of special 0.553
items

Pfreshsp Store has fresh products 0.713

Pqualsp Store has high quality products 0.765

Factor 6: Low price policy image

Offersp The store does a lot of “promotional offers” 0.892

Advertsp The store does a lot of advertising of sales 0.869

Factor 7: Wider opening hours

Omiddaysp The store is open at noon 0.874

Olatesp The store is open until late at night 0.864

Factor 8: Location

Locatedsp It is well located 0.777

29
The final step of the Factor analysis was the selection of the surrogate variables23 of each

factor. These surrogate variables were the representatives of the factors found and the ones

used in the next regression analysis. In the Spanish case, for example, the first factor of

“accessibility by modes of transport” was represented by the variable parksp24 (i.e., “It is

easy to park at the store”) because was the variable with the higher factor loading. All

Spanish surrogate variables were the ones presented in Table 3.

23
As our objective was the identification of appropriate variables for a subsequent application of the regression
technique, a form of data reduction was applied. Given that the aim of this thesis was the practical use of the
model (i.e., its replication) to locate supermarkets, the data reduction technique chose in this case was the
surrogate variables. Surrogate form of data reduction examines the factor matrix and selects the variables with
the highest factor loading on each factor to act as a surrogate variable that is representative of that factor (Hair,
et.al., 1998).
24
Note that it is easy to use a single surrogate variable instead of a linear combination of variables (i.e., Factor
Scores).

30
 Table 3. Surrogate variables of the Spanish survey

FACTOR SURROGATE DESCRIPTION OF THE FACTOR

VARIABLE

Factor 1 Parksp Accessibility by modes of transport

Factor 2 Fchecksp Checkout and shopping assistance service

Factor 3 Emovesp Store design and physical facilities

Factor 4 Clubcsp Club card facilities

Factor 5 Pqualsp Quality and range of merchandise

Factor 6 Offersp Low price policy image

Factor 7 Omiddaysp Wideness of opening hours

Factor 8 Locatedsp Location

31
The previous surrogate variables that represented the factor-attributes found were the key

supermarket’s attributes ( Akij ) that would be included in the Spanish MCI model. As we

have explained, additionally, the physical and travel time distance25 were also introduced in

the specification of the MCI model. Using the Spanish surrogate variables found and the

distance variables, the specified MCI model in the Spanish scenario is the following one:

β β β β β
Parkspij 1 * Fcheckspij 2 * Emovespij 3 * C lub cspij 4 * Pqualsp ij 5
(8) pij =
m β β β β β
∑ ( Parksp ij 1 * Fcheckspij 2 * Emovespij 3 * C lub cspij 4 * Pqualspij 5
j =1

β β β β β
* Offerspij 6 * Omiddayspij 7 * Locatedspij 8 * Dhousespij 9 * Timehspij 10
β β β β β
* Offerspij 6 * Omiddayspij 7 * Locatedspij 8 * Dhousespij 9 * Timehspij 10 )

4.2.2. BRITISH CASE

Factor analysis was applied to the British survey. Eight factors were identified. These factors

represented 77 percent of the variance of the 19 variables26. This percentage was acceptable

given the criterion of satisfactory percentage of variance explained in social science is 60 %

(Hair, et.al., 1998).

The interpretation of the rotated factor matrix was supported by the fact that the minimum

significance level for the factor loading in a sample size of 99 (≈ 100) is 0.55 (using table

3.2., page 112, Hair, et.al., 1998). In other words, in a sample of size near 100, the variables

with factor loadings greater than 0.55 are considered significant.

25
Physical distance and travel time distance from consumers’ zone i to supermarket j in the Spanish scenario
are represented by dhousesp and timehsp variables, respectively.
26
Note that 8 variables were extracted in the reespecification.

32
The label and the significant factor loading’s variables (i.e., the variables with a factor

loading greater than 0.55) of each factor are the ones shown in Table 4.

33
 Table 4. Factors for British survey

Variable Characteristic Factor loading

Factor 1: Low price policy image

Lowpuk Store always has sufficient stock 0.623

Offeruk Store has fresh products 0.918

Advertuk Store has high quality products 0.924

Factor 2: Store design and physical facilities

Crowduk No crowded store 0.751

Emoveuk It is easy to move around the store 0.882

Fproduk It is easy to find products (readable labels) 0.729

Factor 3: Quality and range of merchandise

Pstockuk Store always has sufficient stock 0.692

Pfreshuk Store has fresh products 0.864

Pqualuk Store has high quality products 0.832

Factor 4: Checkout and shopping assistance service

Fcheckuk Fast checkout 0.793

Echeckuk Express checkout counters 0.841

Sassistuk Shopping assistance are courteous and 0.661

knowledgeable

Factor 5: Facilities for non-car customers

Parkuk It is easy to park at the store -0.733

Publictuk Easy access by Public transport 0.839

34
Homeduk Home delivery 0.704

Factor 6: Wider opening hours

Osundayuk The store is open on Sunday 0.862

Olateuk The store is open until late at night 0.859

Factor 7: Location

Locateduk It is well located 0.826

Factor 8: Facilities for car customers

Dpetroluk Petrol discounts 0.877

35
From the previous table, it can be pointed out that the fact that, in this case, two factors were

created to represent the importance of modes of transport. Factor 5 represents the non-car

customers’ facilities, while factor 8 represents car customers’ facilities. The polarization of

the British society between the car users and non-car users were shown by these two factors;

specifically, by factor 5. The reason is that factor 5 included non-car users’ variables (“Easy

access by public transport” and “home delivery”) with positive factors loading and, more

important, a car user variable (“it is easy to park at the store”) with negative factor loading.

In other words, non-car users gave importance to non-car facilities and, at the same time,

they did not give any importance to car facilities.

The final step of the Factor analysis was the selection of the surrogate variables of each

factor. In the British case, for example, the sixth factor of “wider opening hours” was

represented by the variable osundayuk (i.e., “the store is open on Sunday”) because was the

variable with the higher factor loading. All British surrogate variables are presented in Table

5.

36
 Table 5. Surrogate variables of the British survey

FACTOR SURROGATE DESCRIPTION OF THE FACTOR

VARIABLE

Factor 1 Advertuk Low price policy image

Factor 2 Emoveuk Store design and physical facilities

Factor 3 Pfreshuk Quality and range of merchandise

Factor 4 Echeckuk Checkout and shopping assistance service

Factor 5 Publictuk Facilities for non-car customers

Factor 6 Osundayuk Wideness opening hours

Factor 7 Locateduk Location

Factor 8 Dpetroluk Facilities for car customers

37
The previous surrogate variables that represent the factor-attributes found were the key

supermarket’s attributes ( Akij ) that would be included in the British MCI model. As we have

explained, additionally, the physical and travel time distance27 were also introduced in the

specification of the MCI model. Using the surrogate variables found and the distance

variables, the specified MCI model in the British scenario is the following one:

Advertukijβ1 * Emoveukijβ 2 * Pfreshukijβ 3 * Echeckukijβ 4 * Publictukijβ 5

(9) pij = m

∑ ( Advertuk
j =1
β1
ij * Emoveukijβ 2 * Pfreshukijβ 3 * Echeckukijβ 4 * Publictukijβ 5

* Osundayukijβ 6 * Locatedukijβ 7 * Dpetrolukijβ8 * Dhouseukijβ 9 * Timehukijβ10

* Osundayukijβ 6 * Locatedukijβ 7 * Dpetrolukijβ 8 * Dhouseukijβ 9 * Timehukijβ10 )

4.3. CALIBRATION OF THE MCI MODEL TO ESTIMATE pij IN EACH SCENARIO

The calibration of the model identifies, firstly, which of the relevant supermarket’s attributes

identified by consumers (in the factor analysis) are discriminatory supermarket choice. The

calibration, also, estimates the consumers’ sensitivity parameters to the significant (i.e.,

discriminatory) supermarket attributes.

4.3.1. SPANISH CASE

Firstly, the consumers’ zone was created from individual consumer responses, using two

assumptions:

First, the variable “timehsp” coded as interval was transformed to a numeric variable.

27
Physical distance and travel time distance from consumers’ i to supermarket j in the British scenario are
represented by dhouseuk and timehuk variables, respectively.

38
§ Second, consumers that went shopping exclusively from their workplace were excluded

from the analysis. Given that only 11.5 % came exclusively from home, 177 consumers

forming the initial sample were used to create the consumer zones.

The reason of this exclusion is the purpose of the MCI model. Its main application is its

replication in different zones to predict the market share capture of each supermarket in

each zone. The model is estimated with a representative sample, and after this, it is

extrapolated to the whole population by means of a census. Usually, this population

census reflects the population that lives in these specific zones but not the people

working there.

In the Spanish case, 15 zones were created. The next step was the computation of the new

Akij and pij for the consumer zone using the individual Aki*j and the number of consumers in

each zone28.

The last computational transformation before the ordinary least squares (OLS) estimation

was the log-centered transformation of the MCI equation. In this case, this transformation

was:

   locatedsp   parksp   emovesp   omiddaysp 

 pij   ij   ij   ij   ij 
(10) ln ∧  = β1 ln ∧  + β 2 ln ∧  + β 3 
ln ∧  + β 4 ln ∧ 
 p   locatedsp   parksp   emovesp   omiddaysp 
 i   i   i   i   i 

 clubcsp       
 ij   fchecksp ij   pqualspij   offersp ij 
+ β 5 ln ∧  + β 6 ln ∧  + β 7 ln ∧  + β 8 ln ∧ 
 clubcsp   fchecksp   pqualsp   offersp 
 i   i   i   i 

 dhousesp   timehsp  ς* 

 ij   ij   ij 
+ β 9 ln ∧  + β 10 ln ∧  + ln ∧ 
 dhousesp   timehsp  ς 
 i   i   i 

39
Finally, the ordinary least squares were applied to the log-centered transformation form of

the MCI29. The regression estimation for the Spanish survey states that:

p   dhousesp   parksp   offersp 

 ij   ij   ij   ij 
(11) ln ∧  = −2.989 ln ∧  + 0 .858 ln ∧  + 1 .645 ln  ∧ 
 p   dhousesp   parksp   offersp 
 i   i   i   i 

The previous equation is the log-centered transformed form of the estimated Spanish MCI

model. Using the parameters estimated in equation (11), the original MCI model for the

Spanish scenario states that:

dhousespij−2.989 * parkspij0.858 * offersp1ij.645

(12) pij =
∑ [dhousesp ]
m
− 2.989
ij * parkspij0.858 * offersp1ij.645
j =1

where,

pij = The probability that a consumer at zone i will shop at shop j.

dhousespij = Physical distance from demand node i to the supermarket j.

parkspij = Valuation by zone i’s consumers to “the accessibility by modes of transport”

to the supermarket j (on a 5-point scale).

offerspij = Valuation by zone i’s consumers to “the low price policy image” of

supermarket j (on a 7-point scale).

28
Note that the Aki*j used are the eight ones identified by the Factor analysis plus the physical and travel time
distance.
29
The OLS procedure was applied using stepwise estimation. After the estimation, the statistical significance
determines a R-square of 0.881 and an adjusted R-square of 0.868. Moreover, the t-tests of all three variables,
except the constant, prove that all coefficients were significantly different from zero for a significant of 95%.
Finally, an analysis of the residuals confirmed that the previous estimations were correct.

40
Summing up, the calibration of the Spanish MCI model have identified:

§ The discriminatory attributes to the Spanish scenario

Equation (16) shows that the probability of patronizing the two Spanish supermarkets

depends on three variables: “the physical distance from consumer’s zone to the

supermarket” (i.e., variable dhousesp), “the accessibility by modes of transport to the

supermarkets” (i.e., variable parksp) and “the low price policy image” (i.e., variable

offersp). In other words, the choice between both Spanish supermarkets depends only on

these three attributes, because both supermarkets were very similar in the other relevant

attributes.

§ The consumers’ sensitivity parameters to the discriminatory supermarket attributes

In this case, the estimated parameters were –2.989 for the variables dhousesp, 0.858 for

the variable parksp and 1.645 for the variable offersp. A positive sign of the sensitivity

parameters indicates that a supermarket with higher levels of that attribute would have a

higher probability of being patronized; while, a negative sign indicated that a

supermarket with a higher level of that attribute would have a lower probability of being

patronized. In this case, the supermarket with higher valuations of “accessibility by

modes of transport” or “low price policy image” would achieve a higher capture of

consumers (i.e., a higher probability (pij)); while the further supermarket from

consumers’ zone would have a lower probability of being patronized.

Moreover, the absolute values of these sensitive parameters indicate the relative level of

importance give to each of the attributes; a higher value of the sensitive parameter

indicates that a little change of that attribute in one supermarket would have a higher

impact on the probability of being patronized. In this case, the Spanish consumers were

41
 more sensitive to physical distance; than to “low price policy image” and “accessibility

by modes of transport”, respectively.

4.3.2. BRITISH CASE

Firstly, the consumers’ zone was created from individual consumer responses, using two

assumptions:

§ First, the variables timehuk and dhouseuk coded as interval were transformed to numeric

variables.

§ Second, consumers that went shopping exclusively from their workplace were excluded

from the analysis30.

Given the operational problems in the British survey, not all the interviewees did their

usual “shopping” in the supermarket patronized in the survey. As the thesis’ aim was the

analysis of the consumers’ supermarket choice in its usual “shopping”, we needed to

exclude the cases that did not comply with this condition31. Finally, a sample of 62

consumers was determined after the exclusion of the cases that did not comply with any

of the previous conditions.

30
The justification to do this can be found in section 4.3.1.
31
Note that, in the Spanish survey, all the interviewees were usual customers of the Spanish supermarkets. The
reason was that, in this case, the interviewer confirmed that the interviewee did their usual shopping in that
supermarket before begin the interview.

42
In the British case, 6 zones were created32. The next step was the computation of the new Akij

and pij for the consumers zone using the individual Aki*j and the number of consumers in

each zone33.

The last computational transformation before the ordinary least squares (OLS) estimation

was the log-centered transformation of the MCI equation. In this case, this transformation

was:

p   Advertuk   emoveuk   Pfreshuk   echeckuk 

 ij   ij   ij   ij   ij 
(13) ln ∧  = β1 ln ∧  + β 2 
ln ∧  + β 3 
ln ∧  + β 4 
ln ∧ 
 p   Advertuk   emoveuk   Pfreshuk   echeckuk 
 i   i   i   i   i 

 Publictuk   Osundayuk   Locateduk   dpetroluk 

 ij   ij   ij   ij 
+ β 5 ln ∧  + β 6 
ln ∧  + β 7 
ln ∧  + β 8 
ln ∧ 
 Publictuk   Osundayuk   Locateduk   dpetroluk 
 i   i   i   i 

    ς* 
 dhouseuk ij   timehukij   ij 
+ β 9 ln ∧  + β10 ln ∧  + ln ∧ 
 dhouseuk   timehuk  ς 
 i   i   i 

As can be expected, all values of the variable “Dhouseuk” were zeros because the

consumers’ zones were created using the codes (i.e., the intervals) described by this variable.

Then, this variable was excluded from equation (13) to be able to apply ordinary least

squares efficiently (i.e., to find unbiased and efficient estimators).

32
The operational problems of the British sample did not allow knowing the exact address of the interviewees.
Then, the zones were created using the zones described by the variable dhouseuk (i.e., “physical distance from
consumer home to the supermarket”). The six zones created correspond to the six intervals defined in that
variable (i.e., zone 1 includes consumers living within a radius of less than 2 kilometres round the two side-by-
side supermarkets of the Food Centre).
33
Note that the Aki*j used are the eight ones identified by the Factor analysis plus the physical and travel time
distance.

43
Finally, the ordinary least squares were applied to the log-centered transformation form of

the MCI34. The regression estimation for the Spanish survey states that:

p   Advertuk   Pfreshuk 
 ij   ij   ij 
(14) ln ∧  = 2.163 ln ∧  + 1 .650 ln ∧ 
 p   Advertuk   Pfreshuk 
 i   i   i 

The previous equation is the log-centered transformed form of the estimated British MCI

model. Using the parameters estimated in equation (14), the original MCI model for the

British scenario states that:

advertukij2.163 * pfreshukij1.650
(15) pij =
∑ [advertuk ]
m
2.163
ij * pfreshukij1.650
j =1

where,

pij = The probability that a consumer at zone i will shop at shop j.

Advertukij = Valuation by zone i’s consumers to “low price policy image” of

supermarket j (on a 7-point scale).

Pfreshukij = Valuation by zone i’s consumers to the “quality and range of

merchandise” of supermarket j (on a 5-point scale).

Summing up, the calibration of the British MCI model have identified:

§ The discriminatory attributes to the British scenario

34
The OLS procedure was applied using stepwise estimation. After the estimation, the statistical significance
determines a R-square of 0.864 and an adjusted R-square of 0.691. Moreover, the t-tests of both variables,
except the constant, prove that all coefficients were significantly different from zero for a significant of 95%.
Finally, an analysis of the residuals confirmed that the previous estimations were correct.

44
 Equation (15) shows that the probability of patronizing the two British supermarkets

depends on two variables: “the low price policy image” (i.e., variable advertuk) and

“quality and range of merchandise” (i.e., variable pfreshuk). In other words, the choice

between both British supermarkets depends only on these two attributes, because both

supermarkets were very similar in the other relevant attributes. For example, in this case,

distance (i.e., travel time distance) was not significant to explain the supermarket choice

because these two supermarkets are located side by side in the Food Centre of the

Central Milton Keynes Shopping Centre.

§ The consumers’ sensitivity parameters to the discriminatory supermarket attributes

In this case, these parameters were 2.163 for the variable advertuk and 1.650 for the

variable pfreshuk. Here, the supermarket with higher valuation of “the low price policy

image” or “quality and range of merchandise” would achieve a higher capture of

consumers (i.e., a higher probability (pij)). Moreover, the absolute values of the sensitive

parameters indicate that the British consumers were more sensitive to “low price policy

image” than to “Quality and range of merchandise”.

5. A MAXIMUM CAPTURE MODEL FOR THE SUPERMARKET SECTOR

The result of this paper is the presentation of a new version of the maximum capture model

for the supermarket sector which takes account of revealed consumer store-choice behavior.

The maximum capture model (MAXCAP) presented in this case selects the location of

supermarkets for a food retailing company entering a market in which it wishes to

45
maximizes it share of a market where competing supermarkets are already operating. The

formulation of this Maximum Capture Model states35:

(16) MAX Z = ∑∑ ai ρij xij

i∈I j∈J

Subject to

(17) ∑x
j⊂J
ij = p + q , ∀i ∈ I

(18) xij ≤ x jj , ∀i ∈ I , ∀j ∈ J

(19) ∑x
j⊂J
jj =p

xij = {0,1} x jj = {0,1} ∀i ∈ I , ∀j ∈ J

This formulation is similar to the one in the P-median problem (the one presented in

epigraph 2.1.), except in two things:

§ We have reformulate constraint (2): ∑x

j⊂J
ij =1 ∀i ∈ I , the one that forces each

consumers’ zone i to assign to only one shop. Instead, we use constraint set (17) which

states that every consumer zone makes p + q assignments to the p new and q existing

supermarket shops.

§ The parameter ρij is defined using the results found in the previous calibration of the

Multiplicative Competitive Interaction model. Using this consumer store-choice model to

define ρij, the new version of MAXCAP model takes into account how consumers

choose among alternative shopping opportunities.

35
The notation is the same to the one used in section 2.1.
46
The calibration of the parameters of the ρij was performed separately for each country’s

database (as explained in Section 3.4.). Next, we present the two ρij (Spanish and British)

values for use in the new MAXCAP model. The use of each will depend on the country

where the model is applied.

The Spanish ρ ij resulted from the previous analysis states that:

dhousespij−2.989 * parkspij0.858 * offersp1ij.645

(20) p ij =
∑ [dhousesp ]
m
− 2.989
ij * parkspij0.858 * offerspij1.645
j =1

where,

pij = The probability that a consumer at zone i will shop at shop j.

dhousespij = Physical distance form demand node i to the supermarket j.

parkspij = Valuation by zone i’s consumers to the accessibility by modes of transport

to the supermarket j (on a 5-point scale).

offerspij = Valuation by zone i’s consumers to the low price policy image of

supermarket j (on a 7-point scale).

The British ρ ij resulted from the previous analysis states that:

advertukij2.163 * pfreshukij1.650
(21) pij =
∑ [advertuk ]
m
2.163
ij * pfreshukij1.650
j =1

where,

pij = The probability that a consumer at zone i will shop at shop j.

47
 Advertukij = Valuation by zone i’s consumers to “low price policy image” of

supermarket j (on a 7-point scale).

Pfreshukij = Valuation by zone i’s consumers to the “quality and range of

merchandise” of supermarket j (on a 5-point scale).

6. CONCLUSIONS

6.1. A SIMPLE APPLICATION OF THE NEW METHODOLOGY

The aim of this paper is the presentation of a new methodology for determining which

supermarket attributes should be included in the new version of the MAXCAP model

applicable to the retail sector as well as how these parameters ought to be reflected. The

methodology presented in this thesis is the second stage of a broader methodology that

derives the optimal location of new supermarkets in a market where other supermarkets were

already operating.

In this section, we are going to present briefly the flow of a simple application of this

broader methodology and how the analyses presented in this paper were included.

We can consider a scenario represented by a network. This network represents a small town

in Great Britain and each node represent a consumer zone (i.e., neighborhood zones). In this

little town, there are several supermarkets located. A new supermarket chain wants to locate

a store in that little town. The entering Supermarket Company decides to apply the

MAXCAP methodology to find the optimal location of the new store. To do this, the

company applied the following stages:

First Stage: Development of a survey of supermarket - choice behavior

48
The first stage would be the development of a survey in this British town. In this survey,

consumers would be asked to make judgements on the importance of various supermarket’s

attributes when choosing where to do their shopping.

1. To simplify the analysis, we could use the list of general attributes found in this paper for

the British case. In this case, the attributes evaluated in the survey do not need to be

categorized into factors using Factor analysis because general attributes have been used

from the beginning.

Second Stage: Calibration of the MCI model in this British scenario to determine the

parameter pij

The calibration of the MCI involves:

§ The computation of the new Akij and pij for the consumers’ zones using the individual Akij

and the number of consumers in each consumers’ zones.

§ The transformation of the MCI equation in its log-centered transformed form

§ Finally, the application of the ordinary least square method to the previous log-centered

transformed form of the MCI equation.

The calibration of the MCI model would give the estimated MCI for this small town

scenario. Specifically, the calibration would identify which attributes are discriminatory in

the choice between the supermarkets in that British town. Moreover, the calibration would

also estimate the level of importance (i.e., sensitivity parameters) given by consumers to

each of the previous discriminatory attributes.

Third Stage: Resolution of the MAXCAP model

49
Using the pij found in the previous stage, we can solve the new MAXCAP model36.

The resolution of the MAXCAP model would give the optimal location for the new

supermarket. Moreover, we could assume different levels of the significant key attributes for

the new supermarket and find, in each case, the optimal location.

6.2. LIMITATIONS OF THE ANALYSIS

The main limitations of the analysis are the ones identified for revealed preference methods

(Craig, et.al., 1984) and specifically for the MCI model used in this thesis. We shall now

discuss these theoretical problems and their applicability to this case.

§ This model assumes consumer utility function to be compensatory. But really consumers

reject stores beyond a certain distance and may also reject stores unless they meet

threshold levels of other attributes.

This problem does not apply here because the supermarket alternatives in both scenarios

have a minimum level of all key attributes. Additionally, the supermarkets in both cases

were closely enough to be alternative choices for all the consumers in the sample.

§ The model is context dependent; i.e. the estimated parameters associated with

characteristics on which the existing stores do not differ much would be low. This does

not, however, imply that such characteristics are unimportant to consumers but rather

that other variables are used to discriminate among them. This limitation applies to both

scenarios. In the Spanish case, the ranking of supermarket attributes (identified in

Section 4.1.1.) was convenience (location and access by transport mode), quality

products, range of products and price products. Despite this ranking, the key

36
Note that this stage is not explained in this paper, but it is the next step of the broader research.

50
 discriminating variables between both Spanish supermarkets were convenience (distance

and accessibility by transport mode) and price policy. This means that both supermarkets

are very similar in terms of product quality and range. In a similar way, distance was not

significant to explain the British supermarket choice because the two British

supermarkets were located side by side in the Food Centre of the Central Milton Keynes

Shopping Centre.

§ The distance decay parameter (βd) is highly dependent on the characteristics of the

spatial structure.

This limitation is also applicable to this study. Although both surveys were designed to

be as similar as possible, it was not possible to overcome the issue of different spatial

structure in both countries.

- The Spanish scenario is the centre of Barcelona. Barcelona is a traditional

Mediterranean city where supermarkets and grocery shops are located throughput

the city.

- The British scenario is the centre of Milton Keynes. Milton Keynes is a big

residential area. Basically, its roundabouts and American style road network were

designed to ensure that any part of the city would be within 15 minutes drive

time. In terms of supermarkets, the city has a big shopping centre in the middle of

the city (called the Central Milton Keynes Shopping centre) and several small

malls on the city outskirts. The two supermarkets used in the British survey are

located side by side in the Central Shopping Centre.

51
Finally, there is a statistical limitation of the analysis. This is due to:

§ The sample size: the Spanish survey had a sample size of 200 questionnaires, which gave

a level of accuracy (confidence level) of ± 7.1%. The British survey had a sample size of

99 questionnaires, which gave a level of accuracy (confidence level) of ± 10%.

§ The Spanish sample was distributed a priori as a function of the day of the week and the

supermarket involved. The distribution chosen tries to avoid bias in choosing only one

type of supermarket shopper (i.e., weekly or weekend one’s). The British survey posed a

problem in this respect. Operational difficulties meant the British survey could not be

split as the basis of this a priori distribution. Likewise, we were able to establish the

daily distribution of the sample afterwards. The British sample may therefore be biased

toward one type of supermarket consumer.

6.3. NEW DIRECTION

The new direction of this research is obviously the analysis of the third stage of the broader

research work which aim is the presentation of a new modified version of the MAXCAP

model applicable to the retail sector. This last stage involves resolving the new modified

version of the MAXCAP model and its application to a real case.

Firstly, model resolution will involve new metaheuristics37 techniques such as: Heuristic

Concentration (Rosing and ReVelle, 1996, 1997) or Greedy Randomised Adaptive Search

(GRASP) (Feo and Resende, 1989). The resolution of the model involves a computational

procedure in simulated networks to check the optimality of the resolution method.

37
A metaheuristic us a process which applies a subordinate heuristic at each step which has to be designed for
each particular problem. Although there is no guarantee of optimality of these methodologies; Metaheuristics
have proved highly successful in obtaining high quality solutions to many real world complex problems.

52
Once an optimal resolution has been identified, the model can be applied to real cases. A real

case where a new food retailing company wishes to enter a market with a fixed number of

shops to maximize its market share given that another food retailing company is already

operating with a determined number of shops. The computation of the new optimal locations

for the entering firm will be the result of the resolution of this new MAXCAP model that

takes into account the consumers’ behavior in choosing supermarkets.

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